Insurance coverage and conflicting interpretations of the MCS-90.

• Author: Lilly, James R.

COMMERCIAL vehicles engaged in interstate commerce have been federally regulated for over seventy years. Interstate carriers have been required to establish proof of financial responsibility, and assume responsibility for leased vehicles, for fifty years. Central to this regulation of interstate commerce is the premise that an innocent victim is entitled to prompt compensation from an easily identifiable responsible party. While Congress has effectively eliminated the confusion as to liability arising from accidents caused by leased vehicles operating in interstate commerce, its failure to designate the ultimate source of recovery for injured members of the public insurance--has resulted in confusion and delay in the compensation of claimants. In addition to failing to achieve adequate protection of the public, this omission has placed enormous weight on invariably complex choice of law determinations that would have been moot had Congress achieved the uniformity critical to the regulation of interstate carriers.

1. Legislative History

   The Interstate Commerce Commission ("ICC"), established by Congress in 1887, is "conventionally cited as the first of the modern administrative agencies." (1) In 1935, the United States Congress amended the Interstate Commerce Act in an effort to reduce danger to the public inherent in the unregulated use of vehicles in interstate commerce. (2) Further regulation occurred in the 1950s, when Congress, in an effort to protect the public from the confusion surrounding responsibility for accidents involving vehicles leased to interstate carriers, placed responsibility for the control and operation of such vehicles on the carrier. (3) "Significant aims" of this amendment included eliminating the difficulties inherent in fixing financial responsibility for damage and injuries to members of the public. (4)

   Congress created the Department of Transportation ("DOT") in 1966 and, in so doing, transferred some of the ICC's authority to the new department. (5) In particular, the DOT acquired responsibility for the regulation of safety and the operation of equipment by commercial motor vehicle carriers. (6) Fourteen years later, the Interstate Commerce Act was comprehensively reformed through the Federal Motor Carrier Act of 1980. (7) The Motor Carrier Act was a further effort by Congress to limit confusion as to liability arising from accidents caused by leased vehicles. (8)

   Prior to 1996, the ICC and the DOT had concurrent regulatory jurisdiction over vehicles weighing 10,000 pounds that transported non-hazardous materials. (9) Where a carrier established its federally mandated proof of financial responsibility through an insurance policy, the ICC required the incorporation of an endorsement, the BMC-90. (10) The DOT created its own version of the BMC-90, the MCS-90. (11) To eliminate the inherent redundancy of multiple forms performing the same function, the ICC adopted the MCS-90 form. (12)

   The ICC was disbanded pursuant to the ICC Termination Act of 1995. (13) Pursuant to the Termination Act, the ICC's responsibilities were transferred to either the DOT proper, or to its newly established Surface Transportation Board. (14) The Secretary of Transportation continued in his regulatory role until the Motor Carrier Safety Improvement Act of 1999, (15) at which time Congress transferred all "duties and powers related to motor carriers or motor carrier safety vested in the Secretary" to another newly formed agency of the DOT, the Federal Motor Carrier Safety Administration ("FMCSA"). (16) The FMCSA carries out its rule-making function through the dissemination of the Federal Motor Carrier Safety Regulations (FMCSR). (17)

   Notwithstanding the tumultuous litany of federal entities presiding over the regulation of interstate carriers, the regulations themselves have remained essentially the same since the Motor Carrier Act of 1980, albeit revised and renumbered. (18) And there's the rub. Notwithstanding the conflicting interpretations of the MCS-90 since its enactment, the regulation has remained unchanged.

   To engage in interstate commerce, commercial motor carriers must be registered with the Secretary of Transportation. (19) Where such an "authorized carrier" relies upon leased motor vehicles, it must maintain control of, and be responsible for the vehicles "as if the motor vehicles were owned by the motor carriers" (20) and may be held liable irrespective of its active negligence. (21)

   An authorized carrier operating under a permit issued by the Secretary must also procure a bond, insurance policy, or other type of security "sufficient to pay, not more than the amount of the security, for each final judgment against the [carrier] for bodily injury to, or death of, an individual resulting from the negligent operation, (22) maintenance, or use" of its motor vehicles. The minimum level of financial responsibility that must be established for the transportation of non-hazardous materials is $750,000. (23) The purpose of this statute is to ensure that a motor carrier has independent financial responsibility to pay for losses sustained by the general public arising out of its operations. (24)

   Where a carrier establishes proof of financial responsibility through an insurance policy, the MCS-90 endorsement must be included. (25) The MCS-90 provides, in part:

   [T]he company [insurer] agrees to pay *** any final judgment *** regardless of whether or not each motor vehicle is specifically described in the policy and whether or not such negligence occurs on any route or in any territory authorized to be served by the insured or elsewhere. *** [N]o condition, provision, stipulation, or limitation contained in the policy, this endorsement, or any other endorsement thereon, or violation thereof, shall relieve the company from liability *** irrespective of the financial condition, insolvency or bankruptcy of the insured. (26) While, for example, an insurer subject to the MCS-90 must pay "regardless of whether a motor vehicle is specifically described in the policy," (27) the endorsement is only enforced where an insurance policy is used to satisfy proof of financial responsibility. (28)

   A motor carrier may also establish proof of financial responsibility through qualification as a self-insured. (29) The Motor Carrier Act does not address the possibility of such a carrier's insolvency, and courts will not shoehorn the MCS-90 into this role on public policy grounds. In Wells v. Gulf Ins. Co., (30) the Fifth Circuit held that "federal regulations do not require an excess insurer to drop below its liability floor and pay a judgment where it is the first solvent insurer." (31) In so holding the court observed that "there is no security for the protection of the public other than the self-insured's financial strength," (32) before cynically concluding:

   Federal public policy appears unconcerned with the possibility of an insolvent but self-insured carrier, for the only assurance the regulations require is the Federal Motor Carrier Safety Administration's satisfaction that the carrier is qualified. (33) An insurance policy encumbered by MCS-90 remains in effect unless and until it is canceled in a manner prescribed by federal law. (34) Pursuant to the federal regulations, an insurer's notice of its intent to cancel must be provided at least thirty-five days written notice to the insured and at least thirty days written notice to the FMCSA at its offices in Washington, D.C. (35) An MCS-90 endorsement is, however, subject to automatic cancellation, notwithstanding failure to comply with these notice requirements, if the insured purchases "replacement" insurance. (36) The notice requirement operates independently of any other policy provision and, therefore, other conditions to cancellation may apply, including state cancellation statutes, which are not subject to preemption. (37)

2. The MCS-90: Choice of Law and Forum

   1. Choice of Law

      The Supreme Court has held that the state law governing insurance is generally not displaced by federal law. (38) Only where the state law stands as an obstacle "to the accomplishment of the full purposes and objectives of Congress" will federal preemption occur. (39) The relationship between federal and state law is not mentioned in the MCS-90 Endorsement. (40) The MCS-90 does, however, explicitly override any condition, provision, stipulation, or limitation" in the policy that would relieve the insurer from its duty to pay. (41) Consistent with virtually all jurisdictions, American Alternative v. Century (42) concluded that federal law governs where "the dispute concerns the interpretation of an insurance policy endorsement that is required by federal law and whose language is prescribed by a federal regulation," with the remainder of the policy interpreted under the applicable state law. (43)

      Consistent interpretation of the MCS-90 is necessary to avoid confusion and delay in the compensation of members of the public injured by interstate carriers. American Alternative identified how this consideration warranted the application of federal law to the endorsement:

      Were this not so, the anomalous result would be the prospect of conflicting state constructions of a federal statute that was enacted by Congress to serve as a uniform solution to a national problem affecting interstate. commerce. (44) As is evident from the caselaw, the consistent interpretation of the MCS-90 under federal law will not foster national uniformity where the federal courts themselves have never reached a consensus. The lower courts have been at odds with respect to the interpretation of this endorsement since the implementation of its predecessor, the BMC-90 (45) and the United States Supreme Court has refused to enter the fray. (46) Rather than extending any semblance of guidance, Congress has, for a half-century, sat idly by.

   2. Federal Subject Matter Jurisdiction

      1. Federal Question Jurisdiction

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